Half Yearly Report

RNS Number : 3942H

City of London Investment Trust PLC

19 February 2010

 



19 February 2010

THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year Ended 31 December 2009

This announcement contains regulated information

Total Returns	Six Months to 31 December 2009
Net asset value per ordinary share ("NAV")*	31.5%
Average UK Growth & Income Investment Trust NAV * †	30.6%
NAV outperformance	0.9%
Ordinary share price *	27.0%
FTSE All-Share 4% Capped Index #	28.5%
FTSE All-Share Index #	29.1%
Sources: * AIC Information Services Limited               # Thomson Financial, Datastream                † size weighted average

INTERIM MANAGEMENT REPORT

Performance

Net Asset Value Total Return

It is pleasing to be able to report on a strong performance for the six months to 31 December 2009.   City of London's net asset value total return was 31.5% which was slightly ahead of the size weighted average for the UK Growth & Income Investment Trust sector which was up 30.6%.  City of London was also ahead of the FTSE All-Share and FTSE All-Share 4% Capped Indices.

The equity market responded well to the continuing exceptional policy response to the financial crisis with ultra low interest rates and quantitative easing.  Investors were encouraged by signs of economic recovery although these were much stronger in overseas economies, such as China, than in the UK which barely came out of recession.

City of London's gearing was a contributor to performance during this period.  Sectors that were notable outperformers included:  food manufacturing, where there was a large uplift in value for our long standing holding in Cadbury after the takeover bid by Kraft; industrial engineering, which is benefiting from sterling's devaluation; and Real Estate Investment Trusts, which recovered from oversold levels.  In addition, our below average exposure to the underperforming banking sector helped.

Earnings and Dividends

Earnings per share, for this period, have been adversely affected by significant dividend cuts across the UK equity market compared with a year ago.  In addition, portfolio changes have led to a greater proportion of our dividends occurring in the second half of our financial year. 

The Board has been cautious in its dividend distribution policy over the last five years which has led to a significant increase in revenue reserves to £27.9 million or 13.36p per share at 30 June 2009.  It is likely that we will need to utilise part of the revenue reserve in this financial year.  The minimum forecast dividend per share of 12.32p gives a yield of approximately 5%.  The Board is keen to continue our forty-three year record of dividend increases and the Manager's focus continues to be to invest in quality companies with good dividend prospects as well as capital growth potential.

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                                                                                                                                                         Page 2 of 10

THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year Ended 31 December 2009

Interim Management Report (continued)

Material Events and Transactions during the period

Our gearing declined from 10.1% to 8.3% as at 31 December 2009.  Our Manager increased exposure to defensive stocks with significant additions to the holdings of AstraZeneca, in pharmaceuticals, and Centrica, the gas and electricity supplier, and a new holding was purchased in Imperial Tobacco.  Profits were taken in a range of cyclical stocks that had recovered well.  The holding in Barclays was halved after a particularly sharp share price rise.

Banking and Custody Arrangements

I am pleased to announce a new relationship with HSBC Bank, who will be the new custodian of our securities in succession to BNP Paribas Securities Services.  Furthermore, HSBC has agreed to grant the Company a borrowing facility of £50m on attractive terms.  The maximum potential gearing level remains at 20% and this facility will only be used if it is deemed to be in the interests of shareholders.

Expenses

As a result of significant outperformance against the AIC UK Growth & Income sector over the thirty months to 31 December 2009, and the positive move in the share price since end June 2009, a performance fee of £816,000 has been accrued for the full year 2009/2010.  This has been charged 100% to capital.  The performance fee actually charged to the full year accounts will depend on the degree of outperformance achieved over the three years to 30 June 2010, and the movement in the share price over the year to the same date.   The Total Expense Ratio (TER), which is the investment management fee and other non-interest expenses as a percentage of shareholders' funds, remains low compared with most other equity savings products.  The TER for the six months is equivalent to a full year rate of approximately 0.51% of net assets.

The Board

Anita Frew will be stepping down from the Board at the end of March.  I would like to express our gratitude for her excellent contribution since she joined the Board in 2006.  We expect to make at least one new appointment to the Board before the end of our financial year.

Outlook for the six months to 30 June 2010

After such a strong move in the equity market, it would be reasonable to expect some consolidation in the second half of our financial year.  The UK economy faces a number of major challenges with a particularly high level of consumer debt and a public sector deficit estimated to be about 12.5% of GDP, the highest of the G7 economies.  In addition, there is political uncertainty with a general election imminent.  However, our portfolio is biased towards companies with relatively defensive profits and, in many cases, significant overseas exposure.  Higher yielding equities with growing dividends remain attractive given low interest rates in deposit accounts and compared with the yields available in fixed interest securities.

S M de Zoete

Chairman

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                                                                                                                                                         Page 3 of 10

THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year Ended 31 December 2009

 Income Statement

 for the half year ended 31 December 2009

	(Unaudited) Half year ended 31 December 2009			(Unaudited) Half year ended 31 December 2008			(Audited) Year ended 30 June 2009
	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Return/(losses) on investments held at fair value through profit or loss	-	118,528	118,528	-	(103,187)	(103,187)	-	(140,426)	(140,426)
Income from investments held at fair value through profit or loss	10,478	-	10,478	13,674	-	13,674	28,374	-	28,374
Other interest receivable and similar income	1,072	-	1,072	424	-	424	977	-	977
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Gross revenue and capital gains/(losses)	11,550	118,528	130,078	14,098	(103,187)	(89,089)	29,351	(140,426)	(111,075)
	--------	----------	----------	--------	----------	----------	--------	----------	----------
Management fees	(278)	(649)	(927)	(233)	(544)	(777)	(436)	(1,018)	(1,454)
Performance fee	-	(816)	(816)	(25)	(202)	(227)	-	-	-
Write back of VAT (note 6)	-	-	-	53	181	234	538	410	948
Other administrative expenses	(308)	-	(308)	(251)	-	(251)	(535)	-	(535)
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Net return/(loss) on ordinary activities before finance costs and taxation	10,964	117,063	128,027	13,642	(103,752)	(90,110)	28,918	(141,034)	(112,116)
Finance costs	(721)	(1,499)	(2,220)	(789)	(1,656)	(2,445)	(1,510)	(3,157)	(4,667)
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Net return/(loss) on ordinary activities before taxation	10,243	115,564	125,807	12,853	(105,408)	(92,555)	27,408	(144,191)	(116,783)
Taxation on net return on ordinary activities	(30)	-	(30)	(5)	-	(5)	(126)	-	(126)
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Net return/(loss) on ordinary activities after taxation	10,213	115,564	125,777	12,848	(105,408)	(92,560)	27,282	(144,191)	(116,909)
	=====	=====	=====	=====	=====	=====	=====	======	======
Return/(loss) per ordinary share - basic (note 2)	4.90p	55.39p	60.29p	6.20p	(50.87p)	(44.67p)	13.15p	(69.49)p	(56.34)p
	=====	=====	=====	=====	=====	=====	=====	======	======

The total columns of this statement represent the Income Statement of the Company.    All revenue and capital items derive from continuing operations.  No operations were acquired or discontinued during the year.  The Company has no recognised gains or losses other than those recognised in the Income Statement and the Reconciliation of Movements in Shareholders' Funds.

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Page 4 of 10

THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2009

Reconciliation of Movements in Shareholders' Funds

for the half years ended 31 December 2009 and 2008 and year ended 30 June 2009

Half  year ended 31 December 2009 (unaudited)	Called-up share capital £'000	Share premium account £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 30 June 2009	52,130	36,893	312,007	27,852	428,882
Net return on ordinary activities after taxation	-	-	115,564	10,213	125,777
Issue of 100,000 new ordinary shares	25	186	-	-	211
Fourth interim dividend (3.08p per share) for year  ended 30 June 2009 paid 28 August 2009	-	-	-	(6,422)	(6,422)
First interim dividend (3.08p per share) for year   ended 30 June 2010 paid 30 November 2009	-	-	-	(6,426)	(6,426)
	----------	-----------	------------	----------	------------
At 31 December 2009	52,155	37,079	427,571	25,217	542,022
	======	=======	=======	======	=======
	Called-up	Share	Other
	share	premium	capital	Revenue
	capital	account	reserves	reserve	Total
Half  year ended 31 December 2008 (unaudited)	£'000	£'000	£'000	£'000	£'000
At 30 June 2008	51,894	35,309	455,638	25,879	568,720
Net (loss)/return on ordinary activities after taxation	-	-	(105,408)	12,848	(92,560)
Buy-back of 50,000 ordinary shares	-	-	(110)	-	(110)
Fourth interim dividend (2.96p per share) for year ended 30 June 2008 paid 29 August 2008	-	-	-	(6,134)	(6,134)
First interim dividend (3.08p per share) for year ended 30 June 2009 paid 28 November 2008	-	-	-	(6,382)	(6,382)
	--------	--------	----------	--------	----------
At 31 December 2008	51,894	35,309	350,120	26,211	463,534
	=====	=====	======	=====	======
	Called-up	Share	Other
	share	premium	capital	Revenue
	capital	account	reserves	reserve	Total
Year ended 30 June 2009 (audited)	£'000	£'000	£'000	£'000	£'000
At 30 June 2008	51,894	35,309	455,638	25,879	568,720
Net (loss)/return on ordinary activities after taxation	-	-	(144,191)	27,282	(116,909)
Buy-back of 50,000 ordinary shares	-	-	(110)	-	(110)
Sale of 358,090 shares out of treasury	-	-	670	-	670
Issue of 945,000 new ordinary shares	236	1,621	-	-	1,857
Issue expenses incurred	-	(37)	-	-	(37)
Fourth interim dividend (2.96p per share) for year ended 30 June 2008 paid 29 August 2008	-	-	-	(6,134)	(6,134)
First, second and third interim dividends (3.08p each per share) for year ended 30 June 2009 paid 28 November 2008, 27 February 2009 and 29 May 2009	-	-	-	(19,175)	(19,175)
	--------	--------	--------	--------	----------
At 30 June 2009	52,130	36,893	312,007	27,852	428,882
	=====	======	======	======	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2009

Balance Sheet

at 31 December 2009

	(Unaudited) 31 December 2009 £'000	(Unaudited) 31 December 2008 £'000	(Audited) 30 June 2009 £'000
Investments held at fair value through profit or loss
Listed at market value in the United Kingdom	561,243	485,528	439,741
Listed at market value overseas	25,787	26,468	32,552
Shares in subsidiary undertakings	378	378	378
	----------	----------	----------
	587,408	512,374	472,671
	----------	----------	----------
Current assets
Debtors	2,891	5,490	7,167
Bank balances and short term deposits	2,520	2,602	750
	--------	--------	----------
	5,411	8,092	7,917
	--------	--------	----------
Creditors: amounts falling due within one year	(3,398)	(9,533)	(4,307)
	----------	----------	----------
Net current assets/(liabilities)	2,013	(1,441)	3,610
	----------	----------	----------
Total assets less current liabilities	589,421	510,933	476,281
Creditors: amounts falling due after more than one year	(47,399)	(47,399)	(47,399)
	----------	----------	----------
Total net assets	542,022	463,534	428,882
	======	======	======
Capital and reserves
Called-up share capital (note 3)	52,155	51,894	52,130
Share premium account	37,079	35,309	36,893
Other capital reserves	427,571	350,120	312,007
Revenue reserve	25,217	26,211	27,852
	----------	----------	----------
Shareholders' funds	542,022	463,534	428,882
	======	======	======
Net asset value per ordinary share (note 4)	259.81p	223.70p	205.68p
	======	======	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2009

Cash Flow Statement

for the half year ended 31 December 2009

	(Unaudited) Half year ended 31 December 2009 £'000	(Unaudited) Half year ended 31 December 2008 £'000	(Audited) Year ended 30 June 2009 £'000
Net cash inflow from operating activities	12,819	13,312	28,416
Net cash outflow from servicing of finance	(2,220)	(2,451)	(4,681)
Total tax recovered	136	-	2
Net cash inflow from financial investment	5,693	11,025	11,533
Equity dividends paid	(12,848)	(12,516)	(25,309)
Net cash outflow from financing	(1,789)	(7,053)	(9,576)
	---------	---------	----------
Increase in cash	1,791	2,317	385
	=====	=====	======
Reconciliation of operating revenue to net cash inflow from operating activities
Total return/(loss) before finance costs and taxation	128,027	(90,110)	(112,116)
(Less)/add: capital (return)/loss before finance costs and taxation	(117,063)	103,752	141,034
	-----------	-----------	-----------
Net revenue return before finance costs and taxation	10,964	13,642	28,918
Decrease/(increase) in accrued income	1,595	664	(175)
Decrease/(increase) in other debtors	714	(233)	927
Increase/(decrease) in other creditors	1,091	152	(53)
Expenses charged to other capital reserves	(1,465)	(565)	(608)
Overseas withholding tax	(80)	(93)	(337)
Stock dividends included in investment income	-	(255)	(256)
	--------	--------	----------
Net cash inflow from operating activities	12,819	13,312	28,416
	=====	=====	======
Reconciliation of net cash inflow to movement in net debt
Increase in cash as above	1,791	2,317	385
Cash outflow from movement in loans	2,000	6,943	11,956
Exchange movements	(21)	(65)	15
Net debt at beginning of the period	(48,649)	(61,005)	(61,005)
	----------	----------	----------
Net debt at end of the period	(44,879)	(51,810)	(48,649)
	======	======	======
Represented by:
Cash at bank and short term deposits less bank overdrafts	2,520	2,602	750
Debt falling due within one year	-	(7,013)	(2,000)
Debt falling due after more than one year	(47,399)	(47,399)	(47,399)
	----------	----------	----------
	(44,879)	(51,810)	(48,649)
	======	======	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2009

Notes

1.		Accounting policy - Basis of preparation
		The condensed set of financial statements has been prepared using the same accounting policies as are set out in the Company's Annual Report and Financial Statements for the year ended 30 June 2009. The condensed set of financial statements has not been audited or reviewed by the Company's auditors.
2.		Return per ordinary share
			(Unaudited) Half year ended 31 December 2009 £'000		(Unaudited) Half year ended 31 December 2008 £'000		(Audited) Year ended 30 June 2009 £'000
		The return/(loss) per ordinary share is based on the following figures:
		Revenue return	10,213		12,848		27,282
		Capital return/(loss)	115,564		(105,408)		(144,191)
			----------		----------		----------
		Total	125,777		(92,560)		(116,909)
			======		======		======
		Weighted average number of ordinary shares in issue for each period	208,607,911		207,220,603		207,522,950
		Revenue return per ordinary share	4.90p		6.20p		13.15p
		Capital return/(loss) per ordinary share	55.39p		(50.87p)		(69.49p)
			----------		----------		----------
		Total	60.29p		(44.67p)		(56.34p)
			======		======		======
		The Company does not have any dilutive securities.
3.		Called-up share capital
		During the half year ended 31 December 2009, 100,000 ordinary shares were allotted for total proceeds of £211,000 (half year ended 31 December 2008: 50,000 ordinary shares bought back for a total cost of £110,000; year ended 30 June 2009: 50,000 ordinary shares bought back for a total cost of £110,000, 358,090 ordinary shares sold out of treasury for total proceeds of £670,000 and 945,000 ordinary shares issued for total proceeds of £1,857,000).  The number of ordinary shares in issue at 31 December 2009 was 208,619,868.
4.		Net asset value per ordinary share
		The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of  £542,022,000 (31 December 2008: £463,534,000; 30 June 2009: £428,882,000) and on 208,619,868 ordinary shares (31 December 2008: 207,216,778; 30 June 2009: 208,519,868) being the number of ordinary shares in issue at the end of the period.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2009

Notes (continued)

5.    Transaction costs

Purchase transaction costs for the half year ended 31 December 2009 were £220,000 (half year ended 31 December 2008: £115,000; year ended 30 June 2009: £208,000). These comprise mainly stamp duty and commissions. Sale transaction costs for the half year ended 31 December 2009 were £62,000 (half year ended 31 December 2008: £61,000; year ended 30 June 2009: £107,000).

6.    VAT on management fees

While the Company has received back from HMRC 100% of the VAT which had been charged between 1990 and 1996 and 2000 and 2007 as well as simple interest on those amounts, there remains a substantial amount outstanding relating to both VAT reclaims for 1996 to 2000 and compound interest for 1990 to 2007.  Accordingly, because of the amounts involved the Board has decided to join a legal action being led by PricewaterhouseCoopers LLP to recover these amounts.  No recognition of the possible outcome of this action has been included in these half year accounts because of the uncertainty and length of time likely to be involved in this action.

7.    Interim dividends

A first interim dividend of 3.08p was paid on 30 November 2009. The second interim dividend of 3.08p (declared on 10 December 2009) will be paid on 26 February 2010 to shareholders on the register on 22 January 2010.

8.    Related party transactions

Details of related parties are contained in the Annual Report. Other than fees paid in the ordinary course of business, there have been no material transactions with our related parties affecting the financial position or performance of the Company during the six months.

9.    Going concern

The directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements.  The assets of the Company consist mainly of securities that are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future.

10.  Financial information

The financial information contained in this half year report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.

The figures and financial information for the year ended 30 June 2009 have been extracted from the latest published audited accounts of the Company. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors, which was unqualified and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

11.  Half year report

A copy of the Company's report for the half year ended 31 December 2009 will be posted to shareholders on 3 March 2010 and will be available on our website (www.cityinvestmenttrust.com) from 26 February 2010.  Copies can also be requested thereafter from the Secretary at the Registered Office, 201 Bishopsgate, London EC2M 3AE.

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Page 9 of 10

THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2009

Largest Investments

The 60 largest investments, convertibles and all classes of equity in any one company being treated as one investment, were as follows:

Market value 31 December 2009 £'000			Market value 31 December 2009 £'000
BP	39,600		Pennon	4,031
Royal Dutch Shell	35,324		Weir	3,946
British American Tobacco	35,289		RWE	3,931
GlaxoSmithKline	31,668		Greene King	3,917
Vodafone	29,842		Rolls-Royce	3,868
HSBC	29,415		Morrison (W) Supermarkets	3,745
Diageo	28,726		Hiscox	3,576
Scottish & Southern Energy	17,415		Swisscom	3,555
Tesco	17,120		Standard Chartered	3,544
National Grid	16,975		Spirax-Sarco Engineering	3,410
BHP Billiton	15,960		Novartis	3,382
AstraZeneca	15,135		G4S	3,258
Unilever	13,958		Legal & General	3,224
Land Securities	10,960		Halfords	3,194
Rio Tinto	9,261		Severn Trent	3,149
Pearson	8,910		Next	3,124
Britvic	8,568		Smiths Group	3,042
Aviva	8,356		Deutsche Telekom	3,026
Cadbury	7,975		Admiral	2,972
Reckitt Benckiser	7,551		Schroders	2,943
BAE Systems	7,190		Imperial Tobacco	2,940
Barclays	6,762		BBA Aviation	2,870
Centrica	6,746		Meggitt	2,860
Reed Elsevier	6,642		United Utilities	2,850
Croda	5,600		British Sky Broadcasting	2,810
France Telecom	5,109		Marks & Spencer	2,714
IMI	4,926		Segro	2,507
Amlin	4,663		Arriva	2,486
Smiths News	4,476		Whitbread	2,469
Provident Financial	4,176		William Hill	2,414

These investments total £540,055,000 or 92.0% of the portfolio.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2009

Sector Analysis of Portfolio as at 31 December 2009

	%
Oil & Gas	13.6
Basic Materials	5.8
Industrials	9.7
Consumer Goods	18.5
Health Care	8.5
Consumer Services	11.9
Telecommunications	7.1
Utilities	9.4
Financials	14.8
Technology	0.7
	--------
Total	100.0
	=====

Directors' Responsibility Statement

The Directors confirm that, to the best of their knowledge:

a)         the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement "Half-Yearly Financial Reports";

b)         this report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c)         this report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

S M de Zoete, Chairman

For further information please contact:

Job Curtis

Portfolio Manager, The City of London Investment Trust plc

Telephone: [phone]

James de Sausmarez

Head of Investment Trusts, Henderson Global Investors

Telephone: [phone]

Sarah Gibbons-Cook

Investor Relations and PR Manager, Henderson Global Investors

Telephone: [phone]

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